Study Links Ethanol Policy to Food Price Increases, Mideast Turmoil

A report published in October 2012 by the New England Complex Systems Institute (NECSI) links soaring corn and agricultural commodity prices to food riots and turmoil in North Africa and the Middle East.

Although several factors may contribute to political unrest, acknowledge Dr. Yaneer Bar-Yam and two co-authors, “the timing of violent protests in North Africa and the Middle East in 2011 as well as earlier riots in 2008 coincides with large peaks in global food prices.” In poor countries with little or no local agriculture to “buffer” swings in global supply conditions, the central government “may be perceived to have a critical role in food security. Failure to provide security undermines the very reason for existence of the political system.”

In short:

When the ability of the political system to provide security for the population breaks down, popular support disappears. Conditions of widespread threat to security are particularly present when food is inaccessible to the population at large.

Soaring food prices triggered food riots in both 2008 and 2011.

Figure explanation (references omitted): Time dependence of FAO Food Price Index from January 2004 to May 2011. Red dashed vertical lines correspond to beginning dates of “food riots” and protests associated with the major recent unrest in North Africa and the Middle East. The overall death toll is reported in parentheses. Blue vertical line indicates the date, December 13, 2010, on which Dr. Bar-Yam and colleagues submitted a report to the U.S. government, warning of the link between food prices, social unrest and political instability. Inset shows FAO Food Price Index from 1990 to 2011.

At first glance, the NECSI report may seem to belabor the obvious. Hunger breeds desperation; desperation, violence; and violence, instability. But the report does more than correlate food riots with food prices. It also postulates a threshold beyond which food prices likely trigger violence.

In a follow-on study published last month, Bar-Yam and colleagues examine the political repercussions of the U.S. 2012 summer drought, which led to a new increase in corn prices. Through the fall, global maize (corn) prices ”remained at a threshold above which the riots and revolutions had predominantly occurred” in 2011. On the other hand, commodity prices in general “remained at the threshold above which violence was found in 2008-09 and 2010-11.” So what happened?

Coinciding with the food price increases this summer, massive labor strikes in mining and agriculture have led to the greatest single incident of social violence since the fall of apartheid in 1994. Worker demands for dramatic pay increases reflect that their wages have not kept up with drastic increases in the prices of necessities, especially food.

Food-related protests and riots in 2012 also occurred in Haiti and Argentina.

The graph below shows the food price threshold above which riots are predicted to occur. The authors note that since mid-2011 the global food price index has “hovered around the threshold value.”

Figure explanation (references omitted):Global food price index since 2002. The threshold above which widespread food riots and revolutions occurred in 2008-08 and 2010-11 is shown both without (solid red) and with (dashed red) inflation. Whether incomes of poor populations increase with inflation depends on local conditions and national policies.

The authors argue that, “When prices are significantly higher than the threshold, as they were in 2007-08 and 2010-11, widespread violence can be expected. When the prices are proximate to the threshold, incidents of violence should be more sensitive to the specifics of local conditions,” such as national income support policies and the extent to which local prices move with global prices.

In South Africa, though, “The unusually violent and deadly worker riots at platinum mines starting in August of 2012 coincided both with record global maize prices and record high prices for basic food items . . .” Similarly, “xenophobic riots in May of 2008 stood out as the bloodiest violence since apartheid. These riots coincided with food riots around the world during a previous peak of global food prices.”

Figure explanation (references omitted): Consumer price index for bread and cereals in South Africa since 2002 (black, left axis) and global maize prices (blue, right axis). Red solid vertical line indicates beginning of deadly riots in platinum mines, and red dashed line indicates period of severe xenophobic riots. Local prices have increased with global prices but have not correspondingly decreased when prices declined.

So in 2012-2013 what is pushing maize prices up to and beyond the violence threshold? The drought is a factor. The researchers also blame two policies: the “deregulation of commodity futures markets” and the “diversion of almost 50% of the US maize crop to ethanol.” Those policies, they contend, “are ill-advised and should be changed.”

Bar-Yam and his colleagues are surely right about the Soviet-style central planning scheme euphemistically called the “Renewable Fuel Standard.” They do not explain (at least in these papers) why curbing economic liberty would make commodity markets more efficient or make food more affordable over the long term. Blaming speculators for causing or exacerbating food shortages and famines is one of the world’s oldest economic fallacies.